Lexmark 2008 Annual Report Download - page 103

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Assumptions:
2008 2007 2008 2007
Pension
Benefits
Other
Postretirement
Benefits
Weighted-Average Assumptions Used to Determine Benefit
Obligations at December 31:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2% 6.2% 6.4% 6.0%
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8% 3.5% 4.0% 4.0%
2008 2007 2006 2008 2007 2006
Pension
Benefits
Other
Postretirement
Benefits
Weighted-Average Assumptions Used to Determine
Net Periodic Benefit Cost for Years Ended
December 31:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2% 5.7% 5.5% 6.0% 5.7% 5.6%
Expected long-term return on plan assets . . . . . . . . . . 7.6% 7.6% 7.6% — — —
Rate of compensation increase . . . . . . . . . . . . . . . . . . 3.5% 2.9% 3.9% 4.0% 4.0% 4.0%
Plan assets:
Plan assets are invested in equity securities, government and agency securities, mortgage-backed
securities, commercial mortgage-backed securities, asset-backed securities, corporate debt, annuity
contracts and other securities. The U.S. defined benefit plan comprises a significant portion of the assets
and liabilities relating to the defined benefit plans. The investment goal of the U.S. defined benefit plan is to
achieve an adequate net investment return in order to provide for future benefit payments to its
participants. Beginning in December 2008, asset allocation percentages are targeted to be 65% equity
and 35% fixed income investments. The U.S. defined benefit plan expects to employ professional
investment managers during 2009 to invest in new asset classes, including international developed
equity, emerging market equity, high yield bonds and emerging market debt. Prior to December 2008, the
target asset allocation percentages were 75% equity investments and 25% fixed income investments.
Each investment manager operates under an investment management contract that includes specific
investment guidelines, requiring among other actions, adequate diversification, prudent use of derivatives
and standard risk management practices such as portfolio constraints relating to established benchmarks.
The plan currently uses, and intends to use during the asset allocation transition in 2009 noted above, a
combination of both active management and passive index funds to achieve its investment goals.
Lexmark’s U.S. pension plan’s weighted-average asset allocations at December 31, 2008 and 2007, by
asset category were as follows:
2008 2007
Equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70% 75%
Fixed income investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30% 25%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100%
Defined Contribution Plans
Lexmark also sponsors defined contribution plans for employees in certain countries. Company
contributions are generally based upon a percentage of employees’ contributions. The Company’s
expense under these plans was $25.1 million, $25.8 million and $20.5 million in 2008, 2007 and 2006,
respectively.
97